Transforming Industrial Organizations in an Integrated World Economy
Transforming Industrial Organizations
Today many plants around the world are increasingly facing the choice of changing or dying. Sometimes the choice is not apparent until too late. Sometimes the required changes are viewed as too high a price to pay for survival. Sometimes there is insufficient knowledge within the organization of the nature and extent of the required changes. Sometimes the needed changes are blocked by what behavioral scientists call trained incapacity, that is, outmoded beliefs, practices, habits,agreements, policies, vested interests and legal requirements.
The "scientific" management principles of Frederick Taylor--narrow, repetitive job assignments and close supervision to motivate individual workers to work harder--impede progress in many factories where management is unaware of Deming's mantra "teamwork to improve the process." Overcoming such barriers to transforming inefficient, uncompetitive industrial plants and organizations is essential to industrial well-being and even survival in every country in today's increasingly competitive world.
The spotlight is currently in 2009 on the UAW and the Big Three American auto companies, GM, Ford and Chrysler, which have steadily lost market share to foreign competitors and are currently on the verge of bankruptcy as a result of several factors one of which is inefficiencies in their production processes. There is fairly widespread agreement today on the model for an effective manufacturing organization described by such terms as--
Statistical quality control
Just in time and
Labor-management cooperation and job security
The details vary from industry to industry and among management theorists, but there are a number of widely accepted common threads. In automobile industry "lean production," a term coined by John Krafcik of Massachusetts Institute of Technology to describe the Toyota production system, is the term most commonly used to describe a state-of-the art manufacturing system.
At any rate there is a good, fairly well understood model to follow when a new plant is established. (I do not mean to suggest that the decisions and implementation are simple, even in a new plant.) However, what is lacking today is a model for transforming existing facilities, some constructed 30-40-50 years ago or even longer, and which are trammeled by outmoded beliefs, habits, customs, organization structures, management policies or union contracts and negotiated work rules or lega requirements.
Transforming old, inefficient plants (and in some cases, even relatively new but nevertheless inefficient plants) into low cost, high productivity, competitive plants is the most critical problem facing a high proportion of the world's automobile industry today. Failure to accomplish such a transformation will exact a high price on workers, managers, shareholders, plant communities and national economies.
Descriptions of successful plants and companies are easy to come by. But transformation forumlas are hard to find and implement.
American and European automobile companies have been engaged in the process of transformation for several years and will be so engaged for the forseeable future.
Success has been mixed so far, and no patent formulas are available. However, the following observations may be of interest to anyone concerned about this issue--
1. Transformation is not likely to begin until there is clear recognition of the need for change by the top management, union and government leaders. Inertia and resistance to change are great in most organizations, often greatest in the ones most successful in the past.
The need for transformation is recognized by union and management leaders in the U.S. automobile industry. And the parties have addressed the issue of increasing awareness of this need on the part of plant level union and management leaders in a number of ways, for example, by establishing a Paid Educational Leave Program in which authorities on the world automobile industry from M.I.T., University of Michigan and Wayne State University conduct seminars for union-management groups from each plant. The program also includes a week in Washington, D.C., where participants hear from Congressmen from both parties as well as various regulatory and administrative officials. By the end of the program, the plant-level managers and union officials gain a realistic view of the U.S. and world automobile industry. A perhaps an even more basic approach is one of providing a continual flow of information about the business to employees and union leaders.
2. Once the need for change is recognized, the effort to develop a consensus on the nature and extent of change can begin. This is likely to be a long and difficult process. Managers cling tenaciously to outmoded organization structures and cherished perquisites, in part because traditional compensation systems reward reward managers based on the size of their organizations--in terms of the number of people, assets and budgets. Traditional compensation systems thus do not provide incentives for transformation into a lean organization. Union leaders, fearful of not being re-elected, are reluctant to agree to needed changes in work rules. Labor agreements rendered obsolete by new technology and modern behavioral science concepts are very hard to change. Government bureaucrats mindlessly insist on perpetuating obsolete regulations. A high order of management and union leadership is required to develop and focus the energy and consensus required to transform an industrial organization.
3. Transformation is easier in an organization where employees in a plant are represented by a single union than where the workforce is fractionated by multiple, ideologically based unions or compartmentalized by multiple, occupationally based unions. The most successful manufacturing organizations today are where the job classifications are few and broad and work teams accomplish their tasks in ways which often do not conform to traditional occupational demarcations.
4. Transformation is easier in organizations where union and management respect each other and have and effective relationship embodying a tradition of cooperation on areas of mutual concern such as health and safety, quality and productivity. Such cooperation does not preclude vigorous collective bargaining on wages, employee benefits and working conditions. At the critical shop floor level it is not easy to separate the parties' collective bargaining roles from the areas of mutual interest. The issues tend to be inter-related and intertwined. Possibly the best that can be hoped for is a balanced concern in the mind of each party, both for collective bargaining needs and values and for other considerations vital to the survival and prosperity of the organization, e.g., the need to achieve competitive product quality and costs. Transformation is difficult or impossible without trust and effective communication. An expectation of absence of conflict is unrealistic, but a relationship characterized by continual conflict and adversarialism creates an environment where transformation is difficult or impossible. Successful manufacturing organizations tend to be characterized by a high degree of labor-management cooperation.
5. Demonstration projects can be utilized to create models while reducing perceived risks to union, management employees which may be associated with proposed changes. Two examples of such projects in General Motors are the NUMMI joint venture with Toyota and the creation of Saturn Corporation as a separate and distinct entity in General Motors U.S. operations. Both of these plants, one managed by Toyota and the other by GM, with a lot of input from the UAW, have departed significantly from the traditional U.S. automobile industry labor-management relations model, and there is a high degree of labor-management cooperation in both plants. Although both of these ventures have been successful, there has been less "diffusion" than hoped to pre-existing plants. Recently, the process of adopting "lean" methods from NUMMI at other GM plants has accelerated, but is still proceeding more slowly than demanded by the highly competitive U.S. motor vehicle market. Great progress in improving efficiency has also been made in many of Ford's plants in the U.S., apparently without greatly modifying traditional auto industry agreements.
In Europe General Motors is implementing lean production models in new assembly plants in Eisenach (former East Germany) and Szent Gottard, Hungary, and it is engaged in high priority transformation efforts at its existing plants throughout the world. Differing industrial relations, cultural and legal environments throughout the European Community complicate the process, especially in older plants where traditions are strong and hard to change.
[Adapted from a presentation to a United Nations International Labor Organization (ILO) conference in Geneva, October 7, 1992 by the author of this article.]
Saturn Corporation History
- Saturn Corporation -- Company History
Saturn Corporation was founded by General Motors in 1982 as an experiment in labor-management cooperation to produce a high quality small car and a new more customer-friendly dealer sales and service approach.
What is Lean Manufacturing?
- Lean Manufacturing History
A Brief History of Just In Time production and Lean Manufacturing-- Where it came from and how it developed.Many articles & downloads on this site
W. Edwards Deming 1
Lean Manufacturing Resource Guide--M.I.T.
- John Kotter biography
Harvard Business School Professor John Kotter is widely regarded as the world's foremost authority on leadership and change. His is the premier voice on how the best organizations actually "do" change. In his newest work, A Sense of Urgency, Kotter
From NUMMI to M.I.T. to Ford to Hyundai by Krafciik
Rebecca Henderson's Research on Why Corporations Find it Difficult to Change
- Rebecca Henderson co-directs the Business and Environment Initiative at HBS | Harvard Magazine Nov-D
One part of the answer is the phenomenon of “overload”—essentially, the failure to spend time planning for the future because one is so focused on urgent needs of the present. The dangers of such short-term thinking are also a theme of her research.
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